ECONOMICS OF EDUCATION

Economics of Education

Economics of Education

Introduction

Education economics (or economics of education) is the study of economic issues relating to education, including the demand for education, and financing and provision of education. Economists have an excellent positive model of the individual/household demand for schooling in part because it is a straightforward extension of their positive model of everything else.

Economists also have an excellent normative theory of schooling policy which, again, is a straightforward extension of

their normative model that applies to other policy areas. Normative (welfare or public) economics is devoted to the question “what public sector actions would be either

(potentially or actually) Pareto improving (by solving a market failure) or, for a given social welfare function, welfare improving (by addressing an equity concern) over the 'no intervention' outcome?” This essay will focus on economics in education sector.

Discussion

In recent years, school choice has become an increasingly prominent feature of primary and secondary school education. With the passage of new federal legislation (No Child Left Behind), there is little doubt that the trend will continue. School choice comes in a variety of flavors. Vouchers and charter schools are two types of school choice which have received a great deal of both academic and media attention. A third type of school choice, open enrollment, is actually far more prevalent than either vouchers or charter schools. Under open enrollment, students within a public school district are able to attend schools other than their neighborhood school, including specially designated magnet schools. (Hyman 2004)

There are several competing explanations for why students who opt out of their assigned school outperform those who stay behind. Higher graduation rates among those who opt out may be the result of these students attending better schools or finding a school that better matches their preferences. In either of these cases, the increased graduation rates represent the true benefits of open enrollment. There are, however, scenarios in which the students who take advantage of school choice outperform students who do not, but the differences in outcomes do not actually reflect real benefits of open enrollment. Higher graduation rates among those who opt out may be spurious if those who opt out are better on unobserved dimensions (for example, student motivation, and parental involvement).

Higher education in the United States may be the most sophisticated example of how school choice succeeds. Those who focus only on the rising cost of college miss the richness of higher education as an economic model (Acemoglu 2000).

Displacement and Benefit Incidence

The second most widely known fact about education is that, around the world, children from richer households complete substantially more schooling than children from poorer households (Hoxby 2004) as they are more likely to enroll, more likely to enroll at an early age, and less likely to drop out. Nearly all of the government budget for education goes to direct production and the structure of the cost of that subsidy per child is X if the child is enrolled in a government school, ...